Wednesday, June 10, 2015

Eurozone - Still united in diversity

The final stage of the Greek saga debuted along the lines of the recent past. Neither side seems in a hurry to bow to the counterparty’s requests.
Having irritated EU Commission President Juncker late last week by quipping that the EU suggestions were irrational, on Tuesday the Greek PM Tsipras finally submitted his new proposal to the institutions. As reported by Kathimerini, it foresees an increase in the primary surplus targets to 0.75% of GDP (from 0.6%) for 2015 and to 1.75% (from 1.5%) in 2016 and an upward adjustment to its three-rates original proposal.
The Commission’s first reaction was a cool one, focusing on the fact that the proposal contained ideas already rejected in the past rather than on the adjustments to the primary surplus targets and on the new VAT rates. Unsurprisingly, Greek Finance Minister Varoufakis was also dismissive as he defined last week’s creditor proposal a return back to square one, as if the negotiations had not happened.
In our view, even if the manners and procedures of this never-ending process will definitely not win any beauty contest, just looking at the sheer facts it seems as if at least headline numbers and targets have converged again – a tiny bit. The issue is not so much numerical targets but rather how to reach them. This is where the biggest discrepancies between Greece and the rest of the Eurozone still exist. The other, probably most controversial issue is the Greek pension system. While the Eurozone demands an overhaul of the system to make it more sustainable, the Greek government refuses any changes.
Even if both sides are still well apart, these discrepancies look bridgeable; at least in normal European circumstances. However, the Greek crisis has long ago entered new dimensions. Therefore, it looks as if an old negotiation pattern is currently emerging again: when progress at the technical level failed to materialise, the negotiation table is shifted to the top politicians. Looking at the key players, it seems as if we are reaching the final stage of the negotiations; at least for a short-term solution. After negotiations at the wider European level, including the IMF, it again seems to come down to another Greek-German showdown. These two government leaders will have to decide whether they can pour more water into their wine and still serve it at home as an exclusive drink and not as a cheap spritzer.
In this light, observers were yesterday eagerly awaiting a meeting between Tsipras and Merkel at the margins of an EU-Latin America summit in Brussels. However, the two left main actors of the Greek crisis continued their game of chicken, now even at the level on whether or not a meeting would take place. After denials and opposing news, Tsipras and Merkel, supported by French president Hollande, finally met late last evening. After two hours, the meeting was concluded with only one official statement: government leaders had a good exchange of views in a constructive atmosphere. The negotiations between Greece and the three institutions will be continued with high intensity in the coming days. For us, it is hard to tell what really happened during yesterday’s meeting. It all looks as if the psychological game of who will blink first continues.